Consumer Sentiment in U.S. Unexpectedly Falls on Outlook

March 14 (Bloomberg) -- Consumer confidence in the U.S. unexpectedly dropped in March to a four-month low, indicating household spending may be slow to pick up from a weather-related setback earlier this year.

The Thomson Reuters/University of Michigan preliminary index of sentiment fell to 79.9 this month from 81.6 in February. The median estimate in a Bloomberg survey of economists called for the measure to increase to 82.

Consumers surveyed were more pessimistic about the outlook for the economy, indicating bigger payroll gains that lead to faster wage growth are needed to propel spending. At the same time, fewer job cuts, higher home values and stocks close to a record will help keep sentiment from faltering.

“The winter weather is not a reason to get rosy about the economy or personal finances, so we’re seeing consumers hold here,” said Sean Incremona, a senior economist at 4cast Inc. in New York, who projected a decline in the gauge to 80.5. “The job market should continue to improve, albeit at a moderate pace, and we hope eventually we will see increased wages, which will be the real factor to drive spending and sentiment.”

Estimates of the 68 economists in the Bloomberg survey ranged from 79 to 84. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

Producer Prices

Another report today showed inflation at the producer level cooled last month. The Labor Department’s producer-price index unexpectedly decreased 0.1 percent in February after a 0.2 percent advance as the cost of services fell by the most in almost a year.

Stocks rose after the figures as investors watched developments in Ukraine. The Standard & Poor’s 500 Index advanced 0.1 percent to 1,848.59 at 10:48 a.m. in New York.

Today’s figures on confidence run counter to Bloomberg’s weekly measure of sentiment. The Bloomberg Consumer Comfort Index rose last week to the second-highest level since August.

The Michigan sentiment survey’s index of expectations six months from now decreased to 69.4, the lowest since November, from 72.7 last month. The gauge of current conditions, which measures Americans’ view of their personal finances, rose to 96.1 in March from 95.4 a month earlier.

Job Market

Recent data indicate the labor market is beginning to stabilize after harsh winter conditions earlier this year. Figures from the Labor Department yesterday showed claims for unemployment benefits unexpectedly fell last week by 9,000 to 315,000, the lowest level since the end of November. Employers cutting back on dismissals may increase hiring as demand rebounds.

Payrolls expanded by 175,000 workers in February after a 129,000 gain in the prior month, the Labor Department reported on March 7. The jobless rate, however, rose to 6.7 percent from 6.6 percent as the number of people entering the job market swamped the quantity of positions available.

Worker pay is also showing signs of picking up. Hourly wages for all workers climbed 0.4 percent, on average, to $24.31 last month, marking the biggest gain since June, the Labor Department’s figures showed. Average weekly pay increased to $831.40 from $830.75.

Further gains would help stoke demand. Retail sales rose in February for the first time in three months, according to a Commerce Department report yesterday, indicating consumers are starting to shake off the effects of winter.

Gains in confidence, employment and income may compel consumers to dine out more. Peter Bensen, chief financial officer at Oak Brook, Illinois-based McDonald’s Corp., said traffic in quick-service restaurants was “relatively flat” last year.

“It’s a little bit about the consumer and whether the more affluent consumer is feeling better and actually spending more, and probably the less-affluent consumer may be hunkering down a little bit and not eating out as much,” Bensen said at a March 11 conference.